Entera Bio Ltd. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ENTERA BIO LTD. CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2021 TABLE OF CONTENTS Page REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID No. 1309 ) 93 CONSOLIDATED FINANCIAL STATEMENTS: Consolidated Balance Sheets 94 Consolidated Statements of Operations 95 Consolidated Statements of Changes in Shareholders' Equity 96 Consolidated Statements of Cash Flows 97 Notes to the Consolidated Financial Statements 99 92 Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Entera Bio Ltd. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Entera Bio Ltd. and its subsidiary (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, changes in shareholders’ equity and cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Substantial Doubt About the Company’s Ability to Continue as a Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1d to the consolidated financial statements, the Company has incurred recurring losses from operations and has cash outflows from operating activities that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1d. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty Basis for Opinion These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB . We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion . Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion . / s/ Kesselman & Kesselman Certified Public Accountants (lsr.) A member firm of PricewaterhouseCoopers International Limited Tel-Aviv, Israel March 8, 2022 We have served as the Company's auditor since 2010. 93 ENTERA BIO LTD. CONSOLIDATED BALANCE SHEETS (U.S. dollars in thousands, except share data) December 31 2021 2020 A s s e t s CURRENT ASSETS : Cash and cash equivalents 24,892 8,593 A ccounts receivable 183 255 Other current assets 254 261 TOTAL CURRENT ASSETS 25,329 9,109 NON-CURRENT ASSETS: Property and equipment, net 156 192 Operating lease right-of-use assets 239 374 Deferred income taxes 217 - Funds in respect of employee rights upon retirement 46 47 TOTAL NON-CURRENT ASSETS 658 613 TOTAL ASSETS 25,987 9,722 L i a b i l i t i e s and shareholders ' equity CURRENT LIABILITIES: Accounts payable 166 164 Accrued expenses and other payables 2,801 1,330 Current maturities of operating lease 179 189 Contract liabilities 15 158 TOTAL CURRENT LIABILITIES 3,161 1,841 NON-CURRENT LIABILITIES : Operating lease liabilities 123 243 Liability for employee rights upon retirement 138 128 TOTAL NON-CURRENT LIABILITIES 261 371 TOTAL LIABILITIES 3,422 2,212 COMMITMENTS A ND CONTINGENCIES SHAREHOLDERS' EQUITY: Ordinary Shares, NIS 0.0000769 par value: Authorized - as of December 31, 2021 and December 31, 2020, 140,010,000 shares; issued and outstanding:- as of December 31, 2021, and December 31, 2020 28,804,411 and 21,057,922 shares, respectively * * Additional paid-in capital 104,950 77,708 Accumulated other comprehensive income 41 41 Accumulated deficit ( 82,426 ) ( 70,239 ) TOTAL SHAREHOLDERS' EQUITY 22,565 7,510 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 25,987 9,722 * Represents an amount less than one thousand US dollars The accompanying notes are an integral part of the consolidated financial statements. 94 ENTERA BIO LTD. CONSOLIDATED STATEMENTS OF OPERATIONS (U.S. dollars in thousands, except share and per share data) Year ended December 31 2021 2020 REVENUES 571 365 COST OF REVENUES 373 300 GROSS PROFIT 198 65 OPERATING EXPENSES: Research and development 6,771 6,382 General and administrative 5,690 4,851 Other income ( 46 ) - TOTAL OPERATING EXPENSES 12,415 11,233 OPERATING LOSS 12,217 11,168 FINANCIAL EXPENSES , net 29 28 LOSS BEFORE INCOME TAX 12,246 11,196 INCOME TAX (BENEFIT) EXPENSE ( 59 ) 20 NET LOSS 12,187 11,216 LOSS PER SHARE BASIC AND DILUTED 0.47 0.67 WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING USED IN COMPUTATION OF BASIC AND DILUTED LOSS PER SHARE 26,133,770 18,417,093 The accompanying notes are an integral part of the consolidated financial statements . 95 ENTERA BIO LTD CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (U.S. dollars in thousands, except share and per share data) Ordinary shares Number of shares issued Amounts Additional paid-in capital Accumulated other Comprehensive income Accumulated deficit Total BALANCE AT JANUARY 1, 2020 17,864,684 * 72,756 41 ( 59,023 ) 13,774 Net loss - - - - ( 11,216 ) ( 11,216 ) Issuance of ordinary shares and warrants due to a private placement net of issuance costs 337,553 - 796 - - 796 Issuance of shares due to the ATM program, net of issuance costs 2,802,731 - 3,187 - - 3,187 Exercise of options to ordinary shares 31,954 - 68 - - 68 Share-based compensation - - 901 - - 901 Vested restricted share units 21,000 - - - - - BALANCE AT DECEMBER 31, 2020 21,057,922 * 77,708 41 ( 70,239 ) 7,510 Net loss - - - - ( 12,187 ) ( 12,187 ) Exercise of warrants to ordinary shares 3,175,050 - 3,158 - - 3,158 Issuance of shares due to the ATM program, net of issuance costs 4,386,728 * 21,805 - - 21,805 Exercise of options to ordinary shares 177,711 - 418 - - 418 Share-based compensation - - 1,861 - - 1,861 Vested restricted share units 7,000 - - - - - BALANCE AT DECEMBER 31, 2021 28,804,411 * 104,950 41 ( 82,426 ) 22,565 * Represents an amount less than one thousand US dollars. The accompanying notes are an integral part of these consolidated financial statements 96 ENTERA BIO LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS (U.S. dollars in thousands) Year ended December 31 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ( 12,187 ) ( 11,216 ) Adjustments required to reconcile net loss to net cash used in operating activities: Depreciation 53 63 Deferred income taxes ( 217 ) - Share-based compensation 1,861 901 Finance expenses (income), net 18 46 Changes in operating asset and liabilities: Decrease in accounts receivable 72 23 Decrease (increase) in other current assets 7 ( 55 ) I n crease (decrease) in accounts payable 2 ( 170 ) Increase (decrease) in accrued expenses and other payables 1,471 ( 40 ) Increase (decrease) in contract liabilities ( 143 ) ( 109 ) Net cash used in operating activities ( 9,063 ) ( 10,557 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment ( 17 ) ( 53 ) Net cash used in investing activities ( 17 ) ( 53 ) CASH FLOWS FROM FINANCING ACTIVITIES: Cash flows from financing activities: Proceeds from issuance of shares and warrants, net of issuance costs - 796 Proceeds from issuance of shares through ATM programs, net of issuance costs 21,805 3,187 Exercise of options and warrants into shares 3,576 68 Net cash provided by financing activities 25,381 4,051 INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 16,301 ( 6,559 ) CASH, CASH EQUIVALENTS AND RESTRICTED DEPOSITS AT BEGINNING OF THE YEAR 8,663 15,222 CASH, CASH EQUIVALENTS AND RESTRICTED DEPOSITS AT END OF THE YEAR 24,964 8,663 97 ENTERA BIO LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS (U.S. dollars in thousands) Reconciliation in amounts on consolidated balance sheets: Cash and cash equivalents 24,892 8,593 Restricted deposits included in other current assets 72 70 Total cash and cash equivalents and restricted cash 24,964 8,663 SUPPLEMENTAL DISCLOSURE OF CASH FLOW TRANSACTIONS: Income taxes paid in cash during the year 2 89 SUPPLEMENTARY INFORMATION ON INVESTING AND FINANCING ACTIVITIES NOT INVOLVING CASH FLOWS : Cashless exercise of warrants * - Vested restricted shares units * * Operating lease right of use assets obtained in exchange for new operating lease liabilities 31 258 98 ENTERA BIO LTD . NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts) NOTE 1 - GENERAL a. Entera Bio Ltd. (collectively with its subsidiary, the "Company") w as incorporated on September 30, 2009 and commenced operation on June 1, 2010. On January 8, 2018 the Company incorporated Entera Bio Inc., a wholly owned subsidiary incorporated in Delaware USA. The Company is a leader in the development and commercialization of orally delivered large molecule therapeutics for use in areas with significant unmet medical need where adoption of injectable therapies is limited due to cost, convenience and compliance challenges for patients. The Company’s most advanced product candidates, EB613 for the treatment of osteoporosis and EB612 for the treatment of hypoparathyroidism, are based on its proprietary technology platform and are both in Phase 2 clinical development. The Company also licenses its technology to biopharmaceutical companies for use with their proprietary compounds and, to date, has completed one such agreement with Amgen Inc . b. The Company's securities have been listed for trading on the Nasdaq Capital Market since the Company’s initial public offering in July 2018, where a total of 1,400,000 ordinary shares and 1,400,000 warrants (the “IPO warrants”) to purchase up to 700,000 ordinary shares were issued in consideration of net proceeds of $ 9.6 million, after deducting offering expenses . The public offering price was $ 8.00 per unit , each of which consisted of one ordinary share and one warrant to purchase 0.5 of an ordinary share. c. On December 10, 2018, the Company entered into agreement (the “Amgen Agreement”) with Amgen Inc. (“Amgen”) in inflammatory disease and other serious illnesses. Pursuant to the Amgen Agreement, the Company and Amgen have agreed to use the Company’s proprietary drug delivery platform to develop oral formulations for one preclinical large molecule program that Amgen has selected. Amgen also has options to select up to two additional programs to include in the agreement. Amgen is responsible for the clinical development, regulatory approval, manufacturing and worldwide commercialization of the programs . The Company granted Amgen an exclusive, worldwide, sublicensable license under certain of its intellectual property relating to its drug delivery technology to develop, manufacture and commercialize the applicable products. The Company will retain all intellectual property rights to its drug delivery technology, and Amgen will retain all rights to its large molecules and any subsequent improvements, and ownership of certain intellectual property developed through the performance of the agreement is to be determined by U.S. patent law. See also note 10 . d. Since the Company is engaged in research and development activities, it has not derived significant income from its activities and has incurred accumulated losses in the amount of $ 82.4 million through December 31, 2021 and negative cash flows from operating activities. The Company's management is of the opinion that its available funds as of December 31, 2021 will allow the Company to operate under its current plans into the fourth quarter of 2022. These factors raise substantial doubt as to the Company's ability to continue as a going concern. Management is in the process of evaluating various financing alternatives in the public or private equity markets, government grants or through license of the company's technology to additional external parties through partnerships or research collaborations as the Company will need to finance future research and development activities, general and administrative expenses and working capital through fund raising. However, there is no certainty about the Company's ability to obtain such funding . 99 ENTERA BIO LTD . NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES a. Basis of presentation of the financial statements The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). Prior to 2021, the Company prepared its financial statements in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”), as permitted in the United States (“U.S.”) based on the Company’s status as a foreign private issuer as defined by the U.S. Securities and Exchange Commission (the “SEC”). During 2021, the Company determined that it is no longer qualified as a foreign private issuer under the SEC rules. As a result, as of January 1, 2022, the Company is required to comply with all of the disclosure and reporting requirements applicable to U.S. domestic issuers . b. Use of estimates in the preparation of financial statements The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. c. Functional currency 1) Functional and presentation currency Items included in the financial statements of the Company are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The U.S. dollar is the currency of the primary economic environment in which the operations of the Company is conducted. The consolidated financial statements are presented in U.S. dollars. 2) Transactions and balances Transactions and balances originally denominated in U.S. dollars are presented at their original amounts. Balances in non- U.S. dollar currencies are translated into U.S. dollars using historical and current exchange rates for non-monetary and monetary balances, respectively. For non-U.S. dollar transactions and other items in the statements of income (indicated below), the following exchange rates are used: (i) for transactions – exchange rates at transaction dates or average exchange rates; and (ii) for other items (derived from non-monetary balance sheet items such as depreciation and amortization) – historical exchange rates. Currency transaction gains and losses are presented in financial income (expenses), as appropriate . The functional currency of the subsidiary is the U.S. dollar. d. Principles of consolidation The consolidated financial statements include the accounts of the Company and Entera Bio Inc. All inter-company transactions and balances have been eliminated in consolidation. 100 ENTERA BIO LTD . NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued) e. Cash and cash equivalents The Company considers as cash equivalents all short-term, highly liquid investments, which include short-term bank deposits with original maturities of three months or less from the date of purchase that are not restricted as to withdrawal or use and are readily convertible to known amounts of cash. f. Restricted Restricted cash deposited in an interest-bearing saving account which is used as a security for the Company's office rent, and credit card. g. Fair value measurement The Company measures fair value and discloses fair value measurements for financial assets and liabilities. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The accounting standard establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below: Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. Level 2: Observable inputs that are based on inputs not quoted on active markets but corroborated by market data. Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs. h. Employee severance benefits Under the Israeli Severance Pay Law, 1963, the Company is required to make severance payments upon dismissal of an Israeli employee or upon termination of employment in certain other circumstances. The severance payment liability to the employees located in Israel (based upon length of service and the latest monthly salary - one month’s salary for each year employed) is recorded on the Company’s balance sheet under “Liability for employee rights upon retirement.” The liability is recorded as if it was payable at each balance sheet date on an undiscounted basis. In accordance with Section 14 of the Israeli Severance Pay Law, 1963, the Company makes regular deposits with certain insurance companies for accounts controlled by each applicable employee in order to secure the employee’s retirement benefit obligation. The Company is fully relieved from any severance pay liability with respect to each such employee after it makes the payments on behalf of the employee. The liability accrued in respect of these employees and the amounts funded, as of the respective agreement dates, are not reflected in the Company balance sheet, as the amounts funded are not under the control and management of the Company and the pension or severance pay risks have been irrevocably transferred to the applicable insurance companies (the “Contribution Plan”). With regard to the period before December 2013, the liability is funded in part from the purchase of insurance policies or by the establishment of pension funds with dedicated deposits in the funds. The amounts used to fund these liabilities are included in the balance sheets under “Funds in respect of employee rights upon retirement.” These policies are the Company’s assets. The amounts of severance payment expenses were $ 137 and $ 125 for the years ended December 31, 2021 and 2020, respectively. The Company expects to contribute approximately $ 142 in the year ending December 31, 2022 to insurance companies in connection with its expected severance liabilities for that year. 101 ENTERA BIO LTD . NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued) i. Leases On January 1, 2019, the Company adopted ASU No. 2016-02, Leases (Topic 842). The Company determines if an arrangement is a lease at inception. Balances related to operating leases are included in operating lease right-of-use (“ROU”) assets and current and non-current operating lease liabilities in the consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized as of the commencement date based on the present value of lease payments over the lease term. Lease terms will include options to extend or terminate the lease when it is reasonably certain that the Company will either exercise or not exercise the option to renew or terminate the lease. The discount rate for the lease is the rate implicit in the lease unless that rate cannot be readily determined. As the Company’s leases do not provide an implicit rate, the Company’s uses its estimated incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Lease expense for lease payments is recognized on a straight-line basis over the lease term (see also Note 4) . Sublease income is recognized on a straight-line basis over the expected lease term and is included in other income in our consolidated statements of operations . j. Property and equipment 1) Property and equipment are stated at cost, net of accumulated depreciation and amortization. 2) The Company’s property and equipment are depreciated using the straight-line method, which approximates the pattern of usage, over the term of the estimated useful life, as follows : Years Computer equipment 3 - 5 Office furniture 10 Laboratory equipment 7 - 10 Leasehold improvements are amortized by the straight-line method over the shorter of (i) the expected lease term and (ii) the estimated useful life of the improvements. 102 ENTERA BIO LTD . NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued) k. Impairment of long-lived assets The Company tests long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. Recoverability of long-lived assets is measured by comparing the carrying amount of the long-lived asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the sum of the expected undiscounted cash flow is less than the carrying amount of the asset, the Company recognizes an impairment loss, which is the excess of the carrying amount over the fair value of the asset, using the expected future discounted cash flows As of December 31, 2021 and 2020, the Company did not recognize an impairment loss on its long-lived assets . l. Share-based compensation The Company grants share options and restricted share units (“RSU”) (together “Share-Based Compensation”) to its employees, directors and non-employees in consideration for services rendered . The Company accounts for Share-Based Compensation awards classified as equity awards, including share-based option awards and restricted share units, using the grant-date fair value. The Company recognize the value of the award as an expense over the requisite service period . The Company applies ASU 2018-07 (Topic 718) that expands the scope of Topic 718 to include Share-Based Compensation transactions for acquiring goods and services from non-employees. Under the provision of the amendment, the Company measures share-based compensation to non-employees in the same manner as share-based compensation to employees . The Company measures compensation expenses for option awards based on estimated fair value on the date of grant using the Black-Scholes option-pricing model. This option pricing model requires estimates as to the option’s expected term and the price volatility of the underlying stock. The Company measures compensation expense for the restricted share units based on the market value of the underlying share at the date of grant . The Company elected to recognize compensation costs for awards granted to employees and directors conditioned only on continued service that have a graded vesting schedule using the accelerated method based on the multiple-option award approach. The Company elects to account for forfeitures as they occur . m. Research and development expenses Research and development expenses include costs directly attributable to the conduct of research and development programs, including the cost of salaries, share-based compensation expenses, payroll taxes and other employee benefits, lab expenses, consumable equipment and consulting fees. All costs associated with research and developments are expensed as incurred . Grants received from Israel Innovation Authority (hereafter - “IIA”) are recognized when the grant becomes receivable, provided there is reasonable assurance that the Company will comply with the conditions attached to the grant and there is reasonable assurance the grant will be received. Since at the time the grants were received, successful development of the related projects was not assured, the grant was deducted from the research and development expenses as the applicable costs are incurred, and presented in R&D expenses, net . 103 ENTERA BIO LTD . NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued) n. Revenue recognition The Company recognized revenue from the Amgen Agreement which was signed in December 2018 according to ASC 606, "Revenues from Contracts with Customers”. Prior to the signing of the Amgen Agreement in 2018, the Company did not have revenue transactions. ASC 606 Revenue from Contracts with Customer introduces a five-step model for recognizing revenue from contracts with customers, as follows: 1. Identify the contract with a customer. 2. Identify the performance obligations in the contract. 3. Determine the transaction price. 4. Allocate the transaction price to the performance obligations in the contract. 5. Recognize revenue when (or as) the entity satisfies a performance obligation. According to ASC 606, a performance obligation is a promise to provide a distinct good or service or a series of distinct goods or services. Goods and services that are not distinct are bundled with other goods or services in the contract until a bundle of goods or services that is distinct is created. A good or service promised to a customer is distinct if the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. Options granted to the customer that do not provide a material right to the customer that it would not receive without entering into the contract do not give rise to performance obligations. On December 10, 2018, the Company entered into the Amgen Agreement in inflammatory disease and other serious illnesses. As part of the agreement, the Company received non-refundable and non-creditable initial access payment of $ 725 from Amgen in January 2019. The Company identified two performance obligations in the agreement: 1) License to use the Company's proprietary drug delivery platform and 2) pre-clinical research and development services (“pre-clinical R&D services”). The preclinical R&D services include discovery, research and design preclinical activities relating to the programs selected by Amgen. The Company determined the license to the intellectual property to be a right to use that has significant standalone functionality separately from the pre-clinical R&D services since the Company is not required to continue to support, develop or maintain the intellectual property transferred and will not undertake any activities to change the standalone functionality of the intellectual property. Therefore, the license to the intellectual property is a distinct performance obligation and as such revenue is recognized at the point in time that control of the license was transferred to Amgen on December 10, 2018 . Revenues attributed to the preclinical R&Ds services are recognized during the period of the pre-clinical R&D services, over time according to the input model method on a cost-to-cost basis, since the customer benefits from the research and development services as the entity performs the service. The Company evaluated the standalone selling price of the pre-clinical R&D services at $ 225 and the right to use the intellectual property at $ 500 . 104 ENTERA BIO LTD . NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued) n. Revenue recognition (continued) The transaction price was comprised of fixed consideration and variable consideration (capped research and development reimbursements) . Under ASC 606, the consideration that the Company would be entitled to upon the achievement of contractual milestones, which are contingent upon the occurrence of future events of development and commercial progress, are a form of variable consideration. When assessing the portion, if any, of such milestones-related consideration to be included in the transaction price, the Company first assesses the most likely outcome for each milestone and excludes the consideration related to milestones of which the occurrence is not considered the most likely outcome. The Company then evaluates if any of the variable consideration determined in the first step is constrained. Variable consideration is included in the transaction price if, in the Company’s judgment, it is highly probable that a significant future reversal of cumulative revenue under the contract will not occur. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the Company’s anticipated performance and all information (historical, current and forecasted) that is reasonably available. A s of December 31, 2021, the Company did not recognize any revenues from any potential milestone payments. An entity should recognize revenue for a sales-based or usage-based royalty promised in exchange for a license of intellectual property only when (or as) the later of the following events occurs: a) The subsequent sale or usage occurs; and b) The performance obligation to which some or all of the sales based or usage-based royalty has been allocated has been satisfied (or partially satisfied). As royalties are payable based on future commercial sales, as defined in the agreement, which did not occur as of the financial statements date, the Company did not recognize any revenues from royalties. See also note 10 . o. Income taxes 1) Deferred taxes Deferred income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is recognized to the extent that it is more likely than not that the deferred taxes will not be realized in the foreseeable future . 2) Uncertainty in income taxes The Company follows a two-step approach in recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the available evidence indicates that it is more likely than not that the position will be sustained based on technical merits. If this threshold is met, the second step is to measure the tax position as the largest amount that has more than a 50% likelihood of being realized upon ultimate settlement. 105 ENTERA BIO LTD . NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued) p. Loss per share Basic loss per share is computed on the basis of the net loss, adjusted to recognize the effect of a down-round feature when it is triggered, for the period divided by the weighted average number of outstanding ordinary shares during the period . Diluted loss per share is based upon the weighted average number of ordinary shares and of ordinary shares equivalents outstanding when dilutive. Ordinary share equivalents include outstanding stock options and warrants, which are included under the treasury stock method when dilutive. The calculation of diluted loss per share does not include options, restricted shares units and warrants, exercisable into 6,517,102 shares and 7,218,966 shares for the years ended December 31, 2021 and 2020, respectively, because the effect would be anti-dilutive. q. Legal and other contingencies Certain conditions may exist as of the date of the consolidated financial statements, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management assesses such contingent liabilities, if any, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s management evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought . Management applies the guidance in ASC 450-20, “Loss Contingencies” when assessing losses resulting from contingencies. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability is recorded as accrued expenses in the Company’s consolidated financial statements . Legal costs incurred in connection with loss contingencies are expensed as incurred . r. Derivatives Freestanding instruments are first analyzed under the provisions of ASC 480 in order to determine whether the instrument should be classified as a liability, with subsequent changes in fair value recognized in the Statements of Operations in each period . If the instrument is not within the scope of ASC 480, it is further analyzed under the provisions of ASC 815-10 in order to determine whether the instrument is considered indexed to the entity's own stock, and can be classified within equity, or rather be classified as a liability with subsequent changes in fair value recognized in the Statements of Operations in each period . 106 ENTERA BIO LTD . NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts) NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued) s. Newly issued and recently adopted accounting pronouncements: Recently issued accounting pronouncements, not yet adopted 1) In November 2021, the FASB issued ASU 2021-10 “Government Assistance (Topic 832)”, which requires annual disclosures that increase the transparency of transactions involving government grants, including (1) the types of transactions, (2) the accounting for those transactions, and (3) the effect of those transactions on an entity’s financial statements. The amendments in this update are effective for financial statements issued for annual periods beginning after December 15, 2021. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements. 2) In August 2020, the FASB issued ASU 2020-06 “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40).” This guidance simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The amendments to this guidance are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements. 3) In June 2016, the FASB issued ASU 2016-13 “Financial Instruments—Credit Losses—Measurement of Credit Losses on Financial Instruments.” This guidance replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance will be effective for Smaller Reporting Companies (SRCs, as defined by the SEC) for the fiscal year beginning on January 1, 2023, including interim periods within that year. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements. NOTE 3 - COVID-19 In March 2020, the World Health Organization declared the outbreak of COVID-19 to be a pandemic. The COVID-19 pandemic is having widespread, rapidly evolving, and unpredictable impacts on global society, economies, financial markets, and business practices. During 2021, there was a broad distribution of several vaccinations and medicines to overcome the pandemic. The Company has shifted its operations to co-exist along the pandemic with encouragement of vaccinations to all of its employees. Though the Company sees great progress to overcome the COVID-19 pandemic, still the COVID-19 pandemic may continue to impact the Company’s business operations, with outbursts of new variants of the COVID-19 from time to time, and there is uncertainty in the nature and degree of its continued effects over time. 107 ENTERA BIO LTD . NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts) NOTE 4 - OPERATING LEASES 1) The Company leases office and research and development space under several agreements. The annual lease consideration is a total of $ 192 and is linked to the Israeli CPI. The lease agreement will expire on June 30, 2023. As of December 31, 2021, the Company provided bank guarantees of approximately $ 42 , in the aggregate, to secure the fulfillment of its obligations under the lease agreements. 2) The Company has entered into operating lease agreements for vehicles used by its employees. The lease periods are generally for three years and the payments are linked to the Israeli CPI. To secure the terms of the lease agreements, the Company has made certain prepayments to the leasing company, representing approximately three months of lease payments. The annual lease consideration is a total of $ 36 . The lease cost was as follows: Year ended December 31, 2021 Year ended December 31, 2020 Operating lease cost 216 180 Supplemental cash flow information related to leases was as follows: Year ended December 31, 2021 Year ended December 31, 2020 Operating cash flows from operating leases 216 180 Supplemental balance sheet information related to operating leases was as follows: December 31, 2021 December 31, 2020 Operating Leases Operating lease right-of-use assets 239 374 Current lease liabilities 179 189 Non-current lease liabilities 123 243 Total lease liabilities 302 432 Weighted-average remaining lease term (in years) 1.53 2.53 Weighted-average discount rate 16 % 16 % As of December 31, 2021, the maturity of lease liabilities under our non-cancelable operating leases were as follows: 2022 224 2023 117 Total future minimum lease payments 341 Less: interest ( 39 ) Present value of operating lease liabilities 302 108 ENTERA BIO LTD . NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts) NOTE 5 - COMMITMENTS AND CONTINGENCIES a. Commitment to pay royalties to the government of Israel The Company is committed to pay royalties to the IIA on proceeds from sales of products in the research and development of which the Government participates by way of grants. At the time the grants were received, successful development of the related project was not assumed. In the case of failure of the project that was partly financed by the IIA, the Company is not obligated to pay any such royalties . Under the terms of the Company’s funding from the IIA, royalties are payable on sales of products developed from projects so funded of 3 % during the first three years, from commencement of revenues, 4 % during the subsequent three years and 5 % commencing the seventh year up to 100% of the amount of the grant received by the Company (dollar linked) with the addition of annual interest based on LIBOR. The amount that must be repaid may be increased to three times the amount of the grant received, and the rate of royalties may be accelerated, if manufacturing of the products developed with the grant money is transferred outside of the State of Israel. As to the replacement of the LIBOR benchmark rate - even though the IIA has not declared the alternative benchmark rate to replace the LIBOR, the Company does not believe it will have significant impact. As of December 31, 2021, the total royalty amount that would be payable by the Company to the IIA, before the additional LIBOR interest and payments as described above, is approximately $ 460 . Following the signing of the Amgen Agreement (see note 10), the IIA determined that the Company should pay 5.38 % of each payment that will be received by the Company from Amgen on the license of IP up to six times the grant received. As of December 31, 2021, the Company had paid a total amount of $ 79 to the IIA. b. On June 1, 2010 D.N.A. Biomedical Solutions Ltd. ("D.N.A.") and Oramed Ltd., ("Oramed") entered into a joint venture agreement, (the "Joint Venture Agreement") for the establishment of Entera Bio Ltd. According to the Joint Venture Agreement each of D.N.A. and Oramed acquired 50 % of the Company's ordinary shares. D.N.A invested $ 600 in the Company, and Oramed and the Company entered into a Patent License Agreement pursuant to which Oramed licensed to the Company certain of Oramed's patent (the “IPR&D”). On February 22, 2011, Oramed and the Company entered into a patent transfer agreement, (the "Patent Transfer Agreement"), that superseded the Patent License Agreement, whereby Oramed assigned to the Company all of its rights, title and interest to its patent that Oramed licensed to the Company in 2010, under certain conditions. Under this agreement, the Company is obligated to pay Oramed royalties equal to 3 % of its net revenues (as defined in the Patent Transfer Agreement). 109 ENTERA BIO LTD . NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts) NOTE 6 - SHARE CAPITAL 1) Rights of the Company’s ordinary shares Each ordinary share is entitled to one vote . The holder of the ordinary shares is also entitled to receive dividends whenever funds are legally available, when and if declared by the Board of Directors. The right to receive upon liquidation of the Company a sum equal to the nominal value of the share, and if a surplus remains, to receive such surplus, subject to the rights conferred on any class of shares which may be issued in the future. Since its inception, the Company has not declared any dividends. 2) Changes in share capital: a. IPO warrants As described in note 1b, in July 2018 the Company issued 1,400,000 IPO warrants to purchase 700,000 ordinary shares of the Company, these warrants have been listed for trading on the Nasdaq Capital Market and trading began on August 12, 2018. The IPO warrants are exercisable immediately at an initial exercise price of $ 8.4 0 per ordinary share for a period of five years , unless earlier repurchased by the Company under "Fundamental Transactions” as described in the warrant agreement or early expired as described in the warrant agreement. The exercise price and number of ordinary shares issuable upon exercise of each warrant are subject to standard adjustments. In addition, the exercise price is subject to reduction if, within two years of the date of original issuance of the warrants which ended in July 2020, the Company sells or grants any warrant or option (except in certain circumstances as described in the warrant agreement) at an effective price per share less than $ 8.0 0 per share (as adjusted in proportion with any adjustments made from time to time), which reduction will be based on a weighted average, as described in the agreement. As described in note 6(2)b below, the Company completed financing round in a price per share lower than the $8.00, therefore, the adjusted exercise price is $ 5.85 . At the IPO completion date, both of the instruments (warrants and shares) were classified as equity instruments as the warrants are considered indexed to the entity's own stock based on the provision of ASC 815. In March 2021, 4,500 IPO warrants were exercised into 2,250 ordinary shares of the Company for a total consideration of $ 13 at an exercise price of $ 5.85 per ordinary share. As of the December 31, 2021 there are 1,395,500 traded warrants to purchase 697,750 ordinary shares of the Company with an exercise price of $ 5.85 . 110 ENTERA BIO LTD . NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts) NOTE 6 - SHARE CAPITAL (continued) b. On December 11, 2019 and December 18, 2019 (“the first and second closing”), the Company entered into subscription agreements with a selected group of accredited investors, including certain board members and their affiliates for the private placement of 5,710,153 ordinary shares for aggregate subscription proceeds to the Company of $ 13.5 million at a price of $ 2.37 per share. In addition, the Company granted 2,855,095 warrants, exercisable over a three-years period from the date of issuance, to purchase 2,855,095 ordinary shares at a per share exercise price of $ 2.96 . In addition, the exercise price is subject to reduction if, within one years of the date of original issuance of the warrants which ended in December 2020 the Company will issue ordinary shares at an effective price per share less than $2.96. In addition, on December 13, 2019, D.N.A Biomedical Solutions Ltd. (“DNA”), an existing shareholder of the Company, subscribed to the Private Placement (the “DNA Private Placement”) to purchase 337,553 ordinary shares for aggregate consideration of $ 800 . In connection with the transaction, the Company granted DNA warrants, exercisable over a three-year period from the date of issuance, to purchase 168,776 ordinary shares at a per share exercise price of $ 2.96 . This investment was approved by the shareholders of the Company on February 18, 2020. The 168,776 warrants issued in connection with the DNA Private Placement together with the 2,855,095 warrants issued in connection with the Private Placement are the “Investors Warrants” In connection therewith, the Company entered into Placement Agency agreement with GP Numenkari Inc., a broker-dealer (“the Broker”). Based on the agreement, the Broker was entitled to the following consideration: 1. A cash fee equal to 10 % of the total proceeds paid by subscribers invested through the Broker. 2. Three-years warrants to purchase ordinary shares in the amount equal to 10 % of the number of shares issued to subscribers invested through the Broker at a per share exercise price of $ 2.37 (“Broker Warrants Type 1”). 3. Three-years warrants to purchase ordinary share in the amount equal to 5 % of number of shares issued to subscribers invested through the Broker at a per share exercise price of $ 2.96 (“Broker Warrants Type 2”), together with the Broker Warrants Type 1 (the “Broker Warrants”). Following the first and second closing of the offering, the Company issued 184,515 Broker Warrants type 1 and 92,257 Broker Warrants type 2 at per share exercise price of $2.37 to $2.96, respectively The Company had transaction costs of approximately $ 1.2 million, out of which $ 205 are Stock-Based Compensation due to issuance of the Broker Warrants. At the transaction date, both of the instruments (shares and warrants) were classified as equity instruments as the warrants are considered indexed to the entity's own stock based on the provision of ASC 815. During 2020, upon issuance of shares through the Company’s At-the-market equity program at a price per share lower than the exercise price, the exercise price adjusted to $ 1.05 . See note 6(2)e. 111 ENTERA BIO LTD . NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts) NOTE 6 - SHARE CAPITAL (continued) On April 21, 2021, upon satisfaction of the sale price condition pursuant to the subscription agreement signed in December 2019, the Company’s Board of Directors decided to accelerate the termination date of the Investors and Broker warrants issued in December 2019 and February 2020. In accordance with the terms of the agreement, as of the notice date and until June 23, 2021 (the “Early Termination Exercise Period”), the holders may exercise their warrants and following such Early Termination Exercise Period, these warrants shall be deemed terminated. Through June 23, 2021, all warrants holders, including the company's Chairman of the board and DNA, exercised 3,300,645 warrants into 3,172,800 ordinary shares through cash or cashless mechanism. The total consideration from the exercise of these warrants was $ 3,145 at an exercise price of $ 1.05 . As of December 31, 2021, all Investors and Broker warrants were exercised. c. On June 13, 2020, 687,960 warrants to purchase 687,960 ordinary shares for a purchase price of $ 6.99 per share in accordance with the Series B preferred share purchase agreement signed in 2016 and its following amendments expired. d. In July 2020, 340,210 warrants to purchase 340,210 ordinary shares for a purchase price of $ 3.69 per share in accordance with the Series A preferred share purchase agreement expired. e. On July 4, 2020, the Company established a primary registration statement under form F-3 and at-the-market equity program (the " 2020 ATM Program") that allows the Company to issue up to $ 13.9 million of ordinary shares, at the Company's discretion. Distributions of the ordinary shares through 2020 ATM Program were made pursuant to the terms of an equity distribution agreement dated July 13, 2020 among the Company and Canaccord Genuity LLC (the "Agent"). As of December 31, 2020, the Company issued 2,802,731 ordinary shares for gross proceeds of $ 3.5 million at a weighted average price of $ 1.27 per ordinary share through 2020 ATM Program. The net consideration from 2020 ATM Program was $ 3.2 million. These transactions triggered adjustment to the exercise price of the Investors and Broker warrants issued in the Private Placement held in 2019. See note 6(2)b. The Company adjusted its net loss of 2020 for the purpose of loss per share computation in order to include the effect of the down-round trigger in a total amount of $ 1,042 . In February and March 2021, the Company issued additional 2,546,265 ordinary shares for net proceeds of $ 9.9 million at a weighted average price of $ 3.99 per ordinary share through 2020 ATM Program. f. On May 7, 2021, the Company entered into a new At-the-market equity program (the "2021 ATM Program") that allows the Company to issue up to additional 5 million ordinary shares, at the Company's discretion. Distributions of the ordinary shares through the 2021 ATM Program were made pursuant to the terms of an equity distribution agreement dated May 7, 2021 among the Company and B. Riley Securities, Inc. 112 ENTERA BIO LTD . NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts) NOTE 6 - SHARE CAPITAL (continued) In June and July 2021, the Company issued 1,840,463 ordinary shares for net proceeds of $ 12.1 million at a weighted average price of $ 6.74 per ordinary share through the Company’s 2021 ATM Program. g. During the twelve months ended December 31, 2021, several employees and service providers exercised 177,711 options into 177,711 ordinary shares of the Company for a total consideration of $418 at a weighted average price of $ 2.54 per ordinary share. NOTE 7 - SHARE-BASED COMPENSATION 1) Share-based compensation plan On March 17, 2013, the Company's Board of Directors approved a Share Incentive Plan (the “2013 Plan”). Under the 2013 Plan, the Company shall reserve sufficient number of ordinary shares, NIS 0.000769 par value, of the Company for allocation of stock options, restricted share units, restricted share awards and performance-based awards (the "Option"), to employees and non-employees. Each Option is exercisable for one ordinary share. Any option granted under the 2013 Plan that is not exercised within six years from the date upon which it becomes exercisable will expire. On July 2, 2018, the Company's board of directors and shareholders of the Company approved a new Share Incentive Plan (the “2018 Plan”) and reserved 1,371,398 ordinary shares of the Company for allocation of stock options, restricted share units, restricted share awards and performance-based awards (the "Option"), to employees and non-employees for issuance under the 2018 Plan. Each Option is exercisable for one ordinary share NIS 0.0000769 par value. Any option granted under 2018 Plan that is not exercised within 10 years from the date upon which it becomes exercisable will expire. The options granted to employees are subject to the terms stipulated by section 102(b)(2) of the Israeli Income Tax Ordinance (the “Ordinance”). According to these provisions, the Company will not be allowed to claim as an expense for tax purposes the amounts credited to the employees as a capital gain benefit in respect of the options granted. Options granted to related parties or non-employees of the Company are governed by Section 3(i) of the Ordinance or Non-Qualified Share Options ("NSO"). The Company will be allowed to claim as an expense for tax purposes in the year in which the related parties or non-employees exercised the options into shares. As of December 31, 2021, 289,638 ordinary shares remain available for future grants under the Plan. On January 1, 2022 the Company’s Board of Directors approved an increase of 1,440,220 ordinary shares that may be issued under the Company’s Plan. 113 ENTERA BIO LTD . NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts) NOTE 7 - SHARE-BASED COMPENSATION (continued) 2) share-based compensation grants to employees and directors: a) On March 16, 2020, the Company’s Board of Directors approved the following option grants, with an exercise price of $ 2.14 per share: 1. 250,000 options to purchase ordinary shares were granted to certain executive officers. 2. 201,600 options to purchase ordinary shares were granted to certain employees. 3. 7,500 options to purchase ordinary shares was granted to a service provider. The options vest over 4 years from the date of grant; 25 % vest on the first anniversary of the date of grant and the remaining 75 % vest in twelve equal quarterly installments following the first anniversary of the applicable grant date. The fair value of the options at the date of grant was $ 590 . b) On April 20, 2020 options to purchase 31,502 ordinary shares granted to the former CEO with an exercise price of $ 1.98 per share. The options vest over 4 years from the date of grant; 25 % vest on the first anniversary of the date of grant and the remaining 75 % vest in twelve equal quarterly installments following the first anniversary of the applicable grant date. The fair value of the options at the date of grant was $ 37 . Effective September 7, 2020, due to termination of the employment agreement with the former CEO, these options are forfeited and recognized as a reverse of expense under the General and Administrative line. c) In April 2020, the Company entered into an investor relations services agreement. Under the terms of the agreement, the Company agreed to pay a monthly fee of $ 5 and to issue the consultant 28,000 Restricted Share Units (“RSU”), of which the first 7,000 shares vested on the signing date and the remaining 21,000 shares will vest in three equal installments until January 8, 2021. As of December 31, 2020, 21,000 shares were fully vested. The fair value of the RSU was $ 53 using the fair value of the shares at the grant date. d) In November 2020, the Company entered into an amendment to business development services agreement with the business development consultant. Under the terms of the agreement, the Company agreed to pay a monthly fee of $ 5 and to issue the consultant 79,760 options with an exercise price of $ 1.06 per share. The options vests over 6 months in six equal installments from October 1, 2020. The fair value of the options at the date of grant was $ 35 . e) On January 4, 2021 options to purchase 1,314,218 ordinary shares were granted to the Chief Executive Officer of the Company, with an exercise price of $ 1.24 . The options vest over 4 years from the date of grant; 25 % vest on the first anniversary of the date of grant and the remaining 75 % of the option will vest in twelve equal quarterly installments following the first anniversary of the grant date. The grant was subject to the approval by the shareholders of the Company, which approved the grant in March 2021. The fair value of the options at the date of grant was $ 1,320 . 114 ENTERA BIO LTD . NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts) NOTE 7 - SHARE-BASED COMPENSATION (continued) f) On April 7, 2021, the Company’s Board of Directors approved the following option grants: i. Options grants to purchase 213,000 ordinary shares to certain employees and 70,000 options granted to service providers, with an exercise price of $ 3.61 per share. The options vest over 4 years from the date of grant; 25 % vest on the first anniversary of the date of grant and the remaining 75 % of the option will vest in twelve equal quarterly installments following the first anniversary of the grant date. The fair value of the options at the date of grant was $ 646 . ii. Options grant to purchase 33,368 ordinary shares to a non-executive director of the Company, with an exercise price of $ 3.61 . The options will vest over 3 years in twelve equal quarterly instalments starting on the vesting commencement date. These options were subject to the approval of the shareholders of the Company, which was approved on October 4, 2021. The fair value of the options at the shareholders' approval date was $ 104 . g) On April 21, 2021, options to purchase 345,000 ordinary shares were granted to several executive officers of the Company, with an exercise price of $ 3.15 . The options vest over 4 years from the date of grant; 25 % vest on the first anniversary of the date of grant and the remaining 75 % of the option will vest in twelve equal quarterly installments following the first anniversary of the grant date. These options were subject to the approval of the shareholders of the Company, which was approved on October 4, 2021. The fair value of the options at the shareholders' approval date was $ 1,140 . h) On August 23. 2021, the Company’s Board of Directors approved the following option grants which were approved by the shareholders of the Company on October 4, 2021. i. Grants of options to purchase ordinary shares with a total fair value 0f $ 195 for each of the seven non-executive board member on January 1, 2022. The options will vest over 3 years in twelve equal quarterly instalments starting on January 1, 2022 the vesting commencement date. On January 1, 2022, which is considered the awards grant date, the Company granted 752,899 ordinary shares to non-executive directors with an exercise price of $ 2.815 per share. ii. Grants of options to purchase ordinary shares with a total fair value 0f $ 65 for each of the seven non-executive board member on January 1, 2022. The options will vest over 1 year in four equal quarterly instalments starting on January 1, 2022 the vesting commencement date. On January 1, 2022, which is considered the awards grant date, the Company granted 250,964 ordinary shares to non-executive directors with an exercise price of $ 2.815 per share. 115 ENTERA BIO LTD . NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts) NOTE 7 - S HARE-BASED COMPENSATION (continued) The fair value of each option granted is estimated at the date of grant using the Black-Scholes option-pricing model, with the following weighted average assumptions: 2021 2020 Exercise price $ 1.24 - $ 3.61 $ 1.06 -$ 2.14 Dividend yield - - Expected volatility 68 %- 71 % 66.35 %- 71 % Risk-free interest rate 1.11 %- 0.94 % 0.16 %- 0.58 % Expected life - in years 6.1 - 5.8 2.75 - 6.1 2021 2020 Number of options Weighted average exercise price Number of options Weighted average exercise price Outstanding at beginning of year 2,570,109 $ 4.85 2,847,600 $ 4.74 Granted 1,975,586 1.95 570,362 $ 1.98 Exercised ( 177,710 ) 2.37 ( 31,954 ) 2.11 Forfeited ( 16,660 ) 2.37 ( 589,793 ) 2.7 Expired ( 34,466 ) 4.00 ( 226,106 ) 2.68 Outstanding at end of year 4,316,859 $ 3.63 2,570,109 $ 4.85 Exercisable at end of year 2,068,067 $ 5.39 1,791,687 $ 5.49 116 ENTERA BIO LTD . NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts) NOTE 7 - SHARE-BASED COMPENSATION (continued ) The following tables summarizes information concerning outstanding and exercisable options as of December 31, 2021, in terms of ordinary shares: December 31, 2021 Options outstanding Options exercisable Number of Weighted Number of Weighted options Average options Average Exercise outstanding Remaining exercisable Remaining prices per at end of Contractual at end of contractual share (USD) year Life year Life - 4,680 0.78 4,680 0.78 1.06 14,760 3.85 14,760 3.85 1.24 1,314,218 9.02 - - 2.14 422,300 8.26 184,756 8.26 2.53 33,638 7.89 28,031 7.89 3.15 345,000 9.30 - - 3.61 316,368 9.27 5,561 9.27 3.68 185,640 0.32 185,640 0.32 3.97 287,565 7.05 251,949 7.05 6.31 1,245,400 4.08 1,245,400 4.08 7.54 147,290 1.26 147,290 1.26 4,316,859 2,068,067 The aggregate intrinsic value of the total of the outstanding and exercisable options as of December 31, 2021, is $ 2,378 and $ 146 , respectively. The following table illustrates the effect of share-based compensation on the statements of operations: 2021 2020 Cost of revenues 102 51 Research and development expenses 661 514 General and administrative 1,098 336 1,861 901 117 ENTERA BIO LTD . NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts) NOTE 8 - INCOME TAX A. Corporate tax rate 1) Ordinary taxable income in Israel is subject to a corporate tax rate of 23 %. 2) The Company’s subsidiary Entera Bio, Inc. taxed separately under the U.S. tax laws at a tax rate of 29 %. B. Losses for tax purposes carried forward to future years The balance of carryforward losses as of December 31, 2021 and 2020 are approximately $ 56.1 million and $ 44.2 million, respectively. Under Israeli tax law, tax loss carry forward have no expiration date. C. Tax assessments The Company and its subsidiary have tax assessments that are considered to be final through tax year 2016. D. Loss (income) before income taxes is composed of the following Year ended December 31 2021 2020 Entera Bio Ltd 12,362 11,283 Entera Bio Inc ( 116 ) ( 87 ) Total loss before taxes 12,246 11,196 E. Tax expenses: Year ended December 31 2021 2020 Current: Subsidiary 158 20 Total current income tax 158 20 Deferred: Subsidiary ( 217 ) - Total tax on income ( 59 ) 20 118 ENTERA BIO LTD . NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts) NOTE 8 - INCOME TAX (continued) F. Deferred income taxes December 31, 2021 2020 Deferred tax assets: Net operating loss carry forward 12,895 10,176 Research and development 1,319 1,316 Share-based compensation 876 688 Other 152 240 Net deferred tax assets before valuation allowance 15,242 12,420 valuation allowance ( 15,025 ) ( 12,420 ) Net deferred tax assets 217 - Realization of deferred tax assets is contingent upon sufficient future taxable income during the period that deductible temporary differences and carry forward losses are expected to be available to reduce taxable income. G. Rollforward of valuation allowance: Balance at January 1, 2020 9,718 Additions 2,702 Balance at January 1, 2021 12,420 Additions 2,605 Balance at December 31, 2021 15,025 119 ENTERA BIO LTD . NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts) NOTE 8 - INCOME TAX (continued) H. Reconciliation of theoretical tax expenses to actual expenses The primary difference between the statutory tax rate of the Company and the effective rate results virtually from the changes in valuation allowance in respect of carry forward tax losses and research and development expenses due to the uncertainty of the realization of such tax benefits. I. Uncertain tax positions As of December 31, 2021 and 2020, the Company does not have a provision for uncertain tax positions. 120 ENTERA BIO LTD . NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts) NOTE 9 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION: Balance sheets: December 31, 2021 2020 U.S. dollars in thousands b. Accounts payable - other: Employees and employees related 147 144 Income tax 134 - Provision for vacation 308 263 Accrued expenses 2,212 923 2,801 1,330 NOTE 10 - REVENUE FROM COLLABORATION AND LICENSE AGREEMENT On December 10, 2018, the Company entered into a research collaboration and license agreement (the “Amgen Agreement”) with Amgen Inc. (“Amgen”) in inflammatory disease and other serious illnesses. Pursuant to the Amgen Agreement, the Company and Amgen will use the Company’s proprietary drug delivery platform to develop oral formulations for one preclinical large molecule program that Amgen has selected. Amgen also has options to select up to two additional programs to include in the collaboration. Amgen is responsible for the clinical development, regulatory approval, manufacturing and worldwide commercialization of the programs. The Company granted Amgen an exclusive, worldwide, sublicensable license under certain of its intellectual property relating to its drug delivery technology to develop, manufacture and commercialize the applicable products. The Company will retain all intellectual property rights to its drug delivery technology, and Amgen will retain all rights to its large molecules and any subsequent improvements, and ownership of certain intellectual property developed through the performance of the collaboration is to be determined by U.S. patent law. Pursuant to the terms of the Amgen Agreement, Amgen is required to make aggregate payments of up to $ 270 million upon achievement of various clinical and commercial milestones or its exercise of options to select additional two programs to include in the collaboration, as well as tiered royalty payments ranging from the low to mid-single digits based on the level of Amgen’s net sales of the applicable products. Amgen is required to pay for the initial program $ 450 for the second year of preclinical R&D services to be provided by the Company and must reimburse the Company for further expenses as shall be agreed between the parties. Preclinical R&D services includes time spent by the Company's employees performing the Company's activities under the work plan of collaboration program. 121 ENTERA BIO LTD . NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (U.S. dollars in thousands, except share and per share amounts) NOTE 10 - REVENUE FROM COLLABORATION AND LICENSE AGREEMENT (continued) Amgen’s obligation to pay royalties with respect to a product in a particular country commences upon the first commercial sale of such product in such country and expires on a country-by-country and product-by-product basis on the later of (a) the date on which the sale of the product is no longer covered by a valid claim of a patent licensed to Amgen under the Amgen Agreement, and (b) the tenth anniversary of the first commercial sale of such product in such country. The term of the Amgen Agreement commenced on December 10, 2018, and unless earlier terminated, shall continue in full force and effect, on a product-by-product basis, until expiration of the last-to-expire royalty term with respect to such product. In January 2019, as required by the Amgen Agreement, Amgen paid the Company a non-refundable and non-creditable initial technology access fee of $ 725 . The Company evaluated the selling price of the preclinical R&D services at $ 225 and the right to use the intellectual property (“License fees”) at $ 500 . In December 2018, the Company recognized $ 500 in revenues for the right to use the intellectual property. During the second quarter of 2021, the Company extended the agreement, pursuant to the terms, Amgen is required to pay for the third year of preclinical R&D services to be provided by the Company for a total consideration of $ 450 . Revenues attributed to the preclinical R&D services are recognized during the period of the pre-clinical R&D services according to the input model method on a cost-to-cost basis. During 2021 the Company received the second installment for the second year and the first installment for the third year for the pre-clinical R&D services in the amount of $ 450 . In 2021 and 2020, the Company recorded revenues of $ 502 and $ 365 related to services provided under the Amgen Agreement. In addition, as of December 31, 2021 and 2020 the Company recorded a contract liability of $ 15 and $ 158 , respectively. 122 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.